Future development stalls following extension of rent control
TORONTO – October 12, 2017: Urbanation Inc., the leading source of information and analysis on the Toronto condominium market since 1981, released its Q3-2017 rental results today.
Average Rents Leap Past $2,000
During the third quarter of 2017, average index rents for condominium apartments transacted through the MLS system in the Greater Toronto Area increased by 10.3% year-over-year to $2.99 psf. Monthly rents reached an average of $2,219 (average size of 743 sf), rising by $232 over the past 12 months.
While the total number of new leases signed in the third quarter held steady from a year ago at 7,761 units, rental activity for smaller and less expensive units declined on lower levels of supply. The volume of one bedroom without den rentals, typically in the 500-599 sf range, dropped by 11%, while studio rentals fell by 3%. Meanwhile, benchmark rents for these unit types increased by nearly $200 from last year to $1,839 and $1,672, respectively.
The scarcity of available one bedroom rentals led to a sharp increase in the share of units leasing for over asking rent by at least $25, from 28% a year ago to 42% in Q3-2017.
Market Conditions Tighten Further
Condominiums listed for rent in the third quarter were leased within the shortest amount of time on record at an average of just 10 days. The ratio of leases-to-listings remained at an all-time high of 88%, while the 1,048 active listings on the market at the end of September equaled less than two weeks of supply. All indications point towards a decline in vacancy rates in Toronto over the past year.
Rental market conditions have tightened due to a combination of factors that include a surge in migration inflows and a decline in ownership demand following a rapid rise in housing prices early in the year, two consecutive interest rate increases, tougher mortgage insurance qualification criteria, and a slowdown in home sales in the aftermath of the Ontario government’s Fair Housing Plan. This has been compounded by lower rates of tenant turnover, which has been further encouraged through the extension of rent control, and a slowdown in completions of condominium and purpose-built rentals.
Purpose-built Development Pipeline Levels Off
The total proposed inventory of purpose-built rental projects in the GTA reached 30,980 units in Q3-2017, little changed from the previous quarter. The 1,875 new units proposed during the past three months was mostly offset by the movement of some projects out of the proposal stage and into the construction phase, as well as the conversion of some projects to condominium following the introduction of rent control to new units.
Despite the conversion of an additional couple of projects that were already under construction from rental to condo, the number of purpose-built rental apartments under construction increased to 6,146 units — its highest level in two years. The inventory of units under construction is set to decline by the end of the year as 1,681 units are scheduled to reach occupancy during the fourth quarter.
“The intense competition between renters in Toronto shows no signs of letting up in the near future,” said Shaun Hildebrand, Urbanation’s Senior Vice President. “While it’s encouraging to see that rental proposals are still coming in, the level of new development needs to ramp up significantly in order to meet demand,” added Hildebrand.